Think Childcare Limited (ASX:TNK)

TNK Details

Executed a Syndicated Facility Agreement- Think Childcare Limited owns, manages and operates 37 long day childcare facilities in Australia for children between the ages of six weeks and six years old. It works on a strategy of acquiring and integrating childcare centres that are identified on the basis of strict acquisition criteria. Recently, Think Childcare Limited’s management confirmed that it has executed a Syndicated Facility Agreement with Macquarie Bank Limited (MBL) for a five-year facility. This facility is very much aligned with TNK’s stated strategy of acquiring high occupancy centres from its various incubator partners, high occupancy centres on market which make strategic sense and developing selected greenfield sites. Moreover, this strategy is simply structured for future syndication and with an accordion clause, so that it can be re-sized in line with the company’s growth. For this, the Group is closely working with its existing financier and MBL so that it can achieve a smooth transition and is expecting that conditions precedent to it will be satisfied and it can achieve financial close by the end of July. Meanwhile, there was a change in Mr Edwards’ relevant interest in Performance Rights that got decreased as performance conditions were not being satisfied.


Acquisition Metrics (Source: Company Reports)

Further, his percentage interest in the number of Performance Rights on issue by the Company increased by 21.45 per cent due to the overall decrease in the number of Performance Rights on issue as Performance Rights were cancelled. The Group reiterated the outlook that was provided as part of its CY17 results and expects Group’s revenue and NPAT to be around $88.5 million and $8.1 million, respectively for FY18. The Company recently contracted to acquire 4 high quality childcare centres for a total consideration of $5.7 million, representing a 4.0x EBITDA multiple which was funded through capital raising. There are few risks as well involved in investing like the acquisition is dependent on few conditions and it can be a possibility that these don’t get satisfied. Already the market for childcare and early education services in Australia is competitive due to its fragmented nature so TNK may have to compete with other long day care and outside school hours care providers. It is worth noting the stock price was falling for the last one year and saw some recovery of 2.45 per cent as on 28 June 2018 when the Company announced about its financing facilities and was trading at $1.67. The stock can be avoided as of now as there are few issues prevailing and one can wait for some time and can witness any benefits from the acquisitions.
 

TNK Daily Chart (Source: Thomson Reuters)
 

G8 Education Limited (ASX:GEM)

GEM Details

Prior year acquisitions continue to grow occupancy - The Group’s purpose is tocreate spaces that shape generations now and next. G8 provides care for children to free up time to enable parents to go to work, study etc. GEM has an attractive pipeline of 40 centres indicated for the next 2 years. The supply growth is expected to continue to moderate in line with credit availability, which will provide opportunity for disciplined performance going forward. On the other hand, G8 removed thetrade volume restrictions applicable to shares held by CIP and it won’t be applicable anymore from close of trade on 4 June 2018 as initially Shares held by CIPI as at the date of completion of the revised tranche 2 placement were subject to voluntary trading volume restrictions for a period of 12 months. Meanwhile, The Vanguard Group Inc, ceased to be the substantial holder of the Group since 15 June 2018.


Revenue and Underlying EBIT Performance (Source: Company Reports)

The Government funding will increase under new scheme by c.16 per cent to c.$8 billion. The increase in Government funding is due to commence in July 2018 and is projected to drive increased demand in the sector. This with long-term investing in child care centres by many families can help GEM. It is one of Australia’s largest for-profit early education provider, with a network of around 500 centres across the country. The Group has a track record of strong and a disciplined growth with resilient operating performance in challenging market environment. It was observed that prior year acquisitions continued to grow occupancy and are expected to deliver earnings in line with expectations for the full year. It has an annual dividend yield of 9.48 per cent, which at the moment looks unrealistic basis the shortcomings that group witnessed in terms of occupancy levels. On the hand, GEM will select 5-10 centres per year for divestments to optimise portfolio and its Asset upgrade program is on track and has planned 170 events across the network in 2018. The share price has been falling for 5 years. We recommend to “Hold” the stock at the current market price of $2.31 by looking at its network growth and future potential pipeline.
 

GEM Daily Chart (Source: Thomson Reuters)

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